For TV Networks, Ratings Bloodbath Doesn’t Mean Huge Earnings Hit

Everywhere you look, TV networks are getting battered in the ratings, with double-digit viewership declines across the cable dial.

So that must be taking a huge toll on the earnings of media companies that own TV channels, right?

Not quite -- at least not yet. Reports for the first quarter so far showed that companies ranging from Viacom Inc. to Time Warner Inc. to Discovery Communications Inc. have avoided declines in revenue commensurate with the big losses of viewers they've suffered. In some cases, they've actually posted revenue gains.

How? There are a few ways.

First, hotter shows have received a lift in prices, according to John Janedis, an analyst at Jefferies. When ratings are struggling, in-demand shows become even more so, and networks with portfolios of channels can have stars that outshine a roster of duds.

TV companies are also pulling some of their own promotional commercials to fill them with spots from advertisers. Though oftentimes the these are "make-goods," or free commercial time given back to advertisers due to ratings woes.

In the short-term, there isn't a close correlation between TV ratings and ad revenue. "It should be on a longer-term basis," Mr. Janedis said.

Cable giant Viacom, which has shaken up its ad sales structure, was battered in the ratings during the first quarter. According to Jefferies estimates, both MTV and Nickelodeon fell 31% year-over-year in total day viewing, while Comedy Central dropped 27%.

But the company said domestic advertising revenue only fell 5% in the first quarter, a slight improvement from the previous quarter's slide of 6%. In part, the results indicate that Viacom is making progress in selling new ad initiatives outside of the traditional Nielsen measurement confines, analysts have noted.

Viacom has been one of the main voices advocating for new measurement tools, arguing that much of its young viewership is seeing content on platforms outside of the traditional ratings structure, like mobile devices and gaming consoles.

Time Warner Inc.'s Turner Broadcasting grew its ad revenues by 4%, which the company said was mainly thanks to "March Madness" basketball, a weeks-long marketing bonanza, and growth in Turner's news businesses. In prime time, TNT viewership fell 17%, while TBS grew 2% and CNN was up 11%, according to Jefferies.

In a call with analysts, Turner CEO John Martin said the ad market "appears to have stabilized compared to what we were looking at in the fourth quarter of last year." Mr. Martin added that the company will pitch advertisers on new data tools, such as the ability to target audiences based on their buying traits as opposed to just age and gender.

At Comcast's NBCUniversal, broadcast ad revenues increased 5.5%, excluding the revenue generated by the 2015 Super Bowl and the Sochi Olympics in the first quarter of last year. NBCU cable ad revenues increased 4.3%, excluding the Olympics, the company said.

On the ratings front, NBCU's broadcast channel dropped 34% in viewership in the first quarter in prime time (excluding the Olympics, NBC says the drop was 15%, citing Nielsen data). Things weren't much better at its cable properties, with networks like USA, Syfy, Bravo and MSNBC experiencing double digit losses. On the upside, Chiller and CNBC were up 9% and 45%, respectively.

Disney said its media networks, including ABC and its cable channels, had an increase in advertising revenue, while Discovery Communications reported 1% advertising revenue growth. Discovery's ratings were mixed for the quarter: Jefferies estimates that its namesake channel grew 9% and Science Channel spiked 20%, while TLC fell 13% and Animal Planet dropped 4%.

"The question on the advertising side is, will the volume be there. As we have said for our projections for the year, we are assuming it stays tepid. It has been slightly better," Discovery Communications Chief Executive David Zaslav said on the earnings call.

The standout so far is AMC Networks. Riding high on original shows like "The Walking Dead," the company said its advertising revenue rocketed 25% to $260 million.

With ratings struggling, the networks may be in a weaker position during this upfront season, where TV companies present their fall programming to advertisers in the hopes of securing ad deals. Indeed, estimates from Madison Avenue are calling a 10% drop in ad dollars for broadcast networks and a 5% fall for cable networks during the upfronts.

This post has been updated to reflect how coverage of last year’s Olympics affected NBC’s ratings drop this quarter.